Automotive review Q3 2022

Estimates from the International Energy Agency (IEA) say there is global capacity to recycle 180,000 metric tonnes of EV batteries – that is, 360,000 EV batteries – annually. This capacity is expected to rise as electric vehicles gain in popularity and early models come to the end of their life span. The IEA also forecasts that EVs purchased in 2019 alone will generate 500,000 tonnes (one million EVs) of battery waste over their lifetime. And by 2040 there could be 1,300-gigawatt hours’ worth (6.5 million metric tonnes/13 million EVs) of spent batteries that need to be recycled each year.

With constraints on raw materials and pressure on suppliers to meet original equipment manufacturers' (OEM) decarbonisation targets, consideration of access to green or renewable energy, low carbon approaches to raw material extraction, refinement and processing, and options for recycling end-of-life batteries will all play an important role to reduce environmental impact, and potentially the costs of production for batteries and EVs.

Let's start by looking at the two methods of recycling that are typically considered for EV batteries.

Second life recycling

At the end of an EV’s useful life, the battery often still has a 60% to 70% usable charge. These batteries can be rehomed as energy storage solutions, usually in tandem with renewable energy sources. This method has proven popular with OEMs looking to provide a post-car use case for their EV batteries:

• Volvo aims to become a circular business by 2040 and is collaborating with BatteryLoop to use spent batteries as an energy storage system to power charging points for electrified cars and bikes
• Nissan uses spent batteries from its Leaf cars in energy storage across domestic and industrial installations

Material recycling

EV batteries are perhaps not ideally designed for static storage as they must maximise the amount of energy in the smallest package, but most commercial uses don't require such lightweight set-ups. Extracting the precious metals, such as cobalt and lithium, for reuse could therefore be more efficient. These materials can be removed through processes such as pyrometallurgy (heat-based extraction) and hydrometallurgy (water-based extraction).

Material recycling in Europe

Bloomberg New Energy Finance estimates that by 2030 more than 200,000 metric tonnes of lithium-ion batteries will have to be recycled in the EU, with expectations that this will double by 2035. These batteries will provide a crucial supply of precious metals with a clear origin. The European Commission is also likely to introduce new regulation for the battery industry which places further value on recycling and traceability throughout the value chain.

There is already work underway in Europe to develop battery recycling capabilities:

• A German-Swedish consortium is working to develop a robust, flexible and largely waste-free approach to recycling batteries that can potentially recycle 25,000 tonnes (50,000 EVs) of battery mass per year
• Finnish company Fortum has developed a new process for recycling EV batteries, improving upon its previous 80% lithium recycling rate

Material recycling in the UK

In the UK, the government is taking steps towards a more ‘circular economy’ – keeping resources in use, minimising waste and promoting resource efficiency – and recognises the need for established infrastructure to help manage lithium-ion batteries when they are removed from EVs.

There are currently multiple EV battery recycling facilities under development:

• Veolia is developing a plant in Minworth, West Midlands, which aims to recycle 20% of the UK's end-of-life EV batteries by 2024, and has also partnered with Solvay and Renault to develop a prototype plant in France
• Britishvolt and Glencore have entered into a joint venture to set up a UK-based EV battery recycling plant in Northfleet, Kent

Opportunities for recyclers

As more EVs reach their end-of-life stage each year, there will be an ever-growing demand for recycling capabilities and opportunities to fulfil it. Both second life and material recycling will play a crucial role in helping ease the reliance on precious metal extraction and provide supply chain security to companies using this new resource.

It should also be noted that as battery technologies continue to develop and the mix of raw materials changes, recyclers will have to adapt their processes to reflect these changes.

For more insight and guidance with developing business plans and financial models, get in touch with Owen Edwards.

Adoption of battery electric vehicles (BEVs) is expected to accelerate rapidly over the next decade, driven by government policy, tax incentives, UK and Euro emissions regulation and an increasingly environmentally-conscious customer base.

But key differences in the technology and consumer behaviour towards BEVs, together with limited historical data, present a significant potential risk to those underwriting the forecast residual value (RV) of such vehicles as part of contract hire, leasing and personal contract plan (PCP) agreements.

Here we outline five potential issues around forecasting residual values for BEVs.

1 Limited historical data

Market leaders have a well-established process for estimating residual values for three and four-year-old internal combustion engine (ICE) vehicles. This is backed by extensive historical data on model life cycles, influences of macro-economic drivers and actual versus forecast performance of existing methods. BEVs, however, form a limited proportion of new vehicle sales and there's little historical data available. RVs have thus been volatile given the low volume and evolving technology.

2 Limited comparable ICE / BEVs

Few models have like-for-like internal combustion engine (ICE) and BEV options, making direct comparisons challenging. Models that do have ICE and BEV options often have very different performance, power and price points. The new cost price of BEVs versus ICE vehicles on a comparable basis (power trim, etc) are still significantly higher.

3 Rapidly evolving technology

Battery technology is evolving at a rapid pace, with production efficiencies and improved technology leading to lower battery costs per kWh. On average, this has reduced at double-digit rates year on year since BEVs were launched, albeit this is now slowing. Such declines in battery costs have led to reduction in the new sales prices, as well as an increase in the range of BEVs.

4 Running costs

Running cost of BEVs, including electricity, vehicle excise duty and servicing, are lower for BEVs overall even in the higher electric price environment we currently find ourselves in. The total cost of BEV ownership can be better than that of an ICE over its life span.

5 Current market

The UK market for new BEVs is now being incentivised through benefit-in-kind tax benefits, thus this is creating greater than natural demand based on the list price of BEVs without these tax benefits. Such skewed demand in the market for benefit-in-kind vehicles could affect the volume, timing and types of used vehicles entering the used car market, which could have an onward impact the residual values of BEVs.

For some time to come, companies that underwrite residual values for BEVs will be exposed to this volatility risk. However, over time as more new BEVs are sold, values are likely to become less volatile. If you're exposed to RV risk from BEVs, get in touch as we have recently released a white paper on this subject.

To receive a copy or find out more, contact Owen Edwards.